Mississauga Real Estate Update – The Rise and Fall of Price Wars
January through to April, the housing market in Mississauga was functioning in a state of frenzy. Fuelled by low inventory particularly in the low rise home category, people got so passionately involved with that one home that they put a bid on, that they were willing to pay next to any price in order to acquire that home.
Many people got away with paying a little more than the asking price of the home and everything worked out just fine for them. But for some, it meant losing their initial deposit and not getting the home as well.
So what really happened? Here’s my take in my latest Mississauga real estate update.
Let’s say a buyer is approved for a loan up to $500,000 with 10% down payment. This does not mean that the financial institution will provide a 90% loan on a property worth $450,000, if the buyer pays $500,000 or say 10% more than its real worth. Many buyers have recently ended up paying a lot more than property’s actual worth in order to out bid the competition in a multiple bid scenario. Only to find out later that financial institutions will only fund them a loan based on property’s real worth. Mortgagee (bank) would ask the mortgagor (buyer) to pay the difference in cash. Many novice buyers, particularly first time buyers do not know or understand this, and unfortunately neither do their real estate agents.
Getting a real estate license does not mean that the agent knows everything about the Mississauga real estate market trends.
This lack of understanding on the part of agents and their buyers has lead to a lot of issues for both sellers and the buyers. Especially during the month of April, buyers went way over their comfort level, and outbid themselves in the price war and started throwing obnoxious prices for homes. Something that was worth around $500,000, they were buying for $600,000. Well, it was partially because of their misunderstanding of how banks work with mortgage approvals. They thought that their lender had approved them for $600,000 and so felt that they could bid up to this amount to get a home, even if it was listed for a lower amount. Banking on this hope, they comfortably waived all conditions and firmed up the deal and even put a large deposit with their offer.
Now, sellers and their agents have not been too fair either, they have been working with their own best interest in mind. When it is a sellers market, they can pretty much dictate the amount they want for their house. The listing agents and sellers create a multiple bid situation where they know that they will selling their property way over the asking price so they put their own best interest and ask for large deposits should the deal fall through after firming up.
When the deal gets firmed up, the bank receives the documents and they send their appraisers to go to appraise the property. Obviously they come back evaluating the property value to be way below the buying price. Almost every bank would ask the buyer to come up with the difference in the price of the appraised value and buying value irrespective of what their mortgage approval was for.
In some cases, buyers were shelling anywhere between $50,000 – $100,000 from their own pocket, or savings. But not many buyers could generate that kind of money and they ending up losing the deposit to the seller. In some cases they sued their their real estate agents. In fact, I received calls from some lawyers I work with, telling me to be wary of such activity and if the buyer is not taking my advice on price, I should get something in writing from them to say that they are acting on their own will by putting a price well over the asking price.
So what I fell here is that a lot of due diligence is required.
Greed is the biggest culprit here for most of the people for causing all the bigger issues in any industry, or in life in general. Sure you want a house and there is a house for everyone at a reasonable price point. You need to wait and patient. Do not go for the big bidding game. Here are a few more Mississauga real estate tips.
Mississauga Real Estate Update – What to expect next?
Sooner or later the seller will not be able to demand or create that kind of hype in the market. It is May and things are already cooling off a little, thanks to the many deals that are falling through for reasons explained above. Even buyers have learnt their lesson from the banks. There are more listings coming in the market, and overbidding or price wars might be a thing of the past.
But emotions could flare again and things can change in the blink of an eye.
My best advice is to choose your real estate agent wisely. You don’t need an agent just to buy you a home, you need someone who is strong and smart enough to not let you buy a house for various reasons, like neighborhood, price and other key factors.
Mississauga Real Estate Update – Room for Skepticism?
Times like this, it is hard to say which direction the market is heading. With the price wars settling down, market could stabilize again. While there are mixed emotions in consumers’ minds, the big weights continue to stay positive on the GTA real estae market. The headline from a BNN article this morning reads: “Toronto real estate will continue to do extremely well, says former RBC CEO”.
According to the Toronto Real Estate Board, the average price of a detached home in the Greater Toronto Area rose to $968,437 in April; that’s a 143 per cent increase from the same period in 2008, when the average price of a detached home in the GTA was $398,687.
The BNN article goes on top say: “As difficult as it is for people trying to enter the marketplace (because it is so expensive), relative to major cities around the world like New York or London, Toronto is certainly not out of line. It brings with it social challenges, but I think the market is in good shape.”
So for now, let’s stay positive. But as the rule with any investing, we need to be alert and nimble with real estate buying and selling. Contact us if you have any questions regarding buying or selling your Mississauga home or condo, or investing is adjoining upcoming areas like Ancaster, Waterdown, Hamilton among others.